Emerson explores 'alternatives' for its motors and drives activities

01 July, 2015

Emerson has announced that it is exploring “strategic alternatives” for its motors and drives operation – which includes the drives-maker Control Techniques and the motor manufacturer Leroy-Somer – as part of a plan to streamline its portfolio, drive growth and accelerate value creation. The US-headquartered company has also announced that it is spinning off its Network Power business and is planning a “complete review and assessment” of its corporate structure and services to reduce its size and sharpen its focus.

The spinoff of Emerson’s Network Power business, combined with the potential separation of its motors and drives, power generation and storage businesses, could slash its revenues from $24.5bn in 2014 to around $16.3bn, but boost its sales growth from 4.5% to 6.9%, and its EBIT from 16.5% to 19.7%. The remaining businesses would focus mainly on the process control, heating and air-conditioning markets.

Emerson says that it plans to evaluate a “broad range of alternatives” for the motors and drives, power generation and storage businesses, but adds that the strategic review may not result in any transactions. The company does not plan to make any further comments on the review until its board approves any specific transactions, or the review process is concluded.

According to a rumour reported in the French publication, Charente Libre, Leroy-Somer will be sold to "an Asian group". The publication says the information has come from "several labour organisations". But Emerson says that the information is "inaccurate".

The proposed spinoff of the Network Power business marks a strategic retreat for Emerson which has spent about $3.8bn in acquisitions to build up the division – including the $1.5bn purchase of the UK-based Chloride Group in 2010. But the business, which supplies power equipment to the telecommunications and datacentre markets, has been hit by a downturn in these markets and by changes such as the outsourcing of data storage to large-scale centres that need fewer off-the-shelf components. In 2014, Network Power represented about 20% of Emerson’s total sales.

Emerson plans to transfer Network Power to its shareholders in a process that it expects to complete by September 2016. It says that as a publicly traded company, Network Power will be the world’s leading, stand-alone provider of thermal management, AC and DC power, transfer switches, services and infrastructure management systems for the datacentre and telecommunications industries. It will be well positioned for further growth with increased flexibility and speed to market.

Farr: sharper strategic focus

“We are aligning ourselves with the changing global marketplace and our customers’ evolving needs to drive Emerson and Network Power forward,” says chairman and chief executive, David Farr. “Creating two, independent companies will position both businesses to continue as leaders and to pursue distinct strategies to drive profitable growth.

“Emerson and Network Power will each have sharper strategic focus,” he adds, “enabling both companies to better allocate resources, incentivise employees and allocate capital to capture the significant long-term opportunities in their respective markets.”

Farr stresses that Emerson is still looking for potential acquisitions.